The past several years have seen an explosion in class action cases brought under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C 227. The TCPA generally restricts telemarketing phone calls and the use of automated telephone equipment. Most of the reported court opinions involve financial services companies which send numerous messages by fax machine or SMS texts to cell phones.
The TCPA provides a private right of action which allows wronged consumers to recover $500 per violation or $1500 per violation if it is determined that the statute was knowingly or willfully violated. The statute is made-to-order for class actions because defendants are often accused of engaging in blasts of faxes or texts, thereby creating the possibility of significant damages if claims are aggregated.
In our experience, cases brought under the TCPA often strategically settle because if a violation is apparent, the statute provides for damages in a sum certain. Not surprisingly, companies sued under the TCPA have sought insurance coverage for defense, judgment, and settlement costs. In early settlement discussions, opposing counsel will often request copies of any insurance policies that may provide coverage. Commercial General Liability (“CGL”) policies have been invoked in the majority of coverage cases. As several jurisdictions began upholding insurers’ denial of coverage under CGL policies, policy holders have started attempting to obtain coverage under Errors and Omissions (“E&O”), Directors and Officers (“D&O”), and Cyber insurance policies. In light of this potentially costly and problematic statute, it is imperative that insureds carefully analyze their business operations for compliance with TCPA regulations and their insurance policies to ensure that adequate coverage exists.
If a TCPA case alleges acts or omissions of directors, officers, or other executives, coverage may very well be available under the D &O insurance policy. Recent cases, however, demonstrate that obtaining coverage for TCPA claims under D&O policies is far from certain.
For example, in LAC Basketball Club, Inc. v. Federal Insurance Company, the Los Angeles Clippers were sued in a class action arising out of text messages sent to fans which solicited the fans to send texts to be posted on a scoreboard for view by the live audience. 2014 WL 1623704 (C.D. Cal. Feb. 14, 2014). One fan sent the text, and subsequently received numerous texts containing advertisements. The fan sued under the TCPA, the basketball club sued under its D&O policy, and the court denied coverage because of the “invasion of privacy” exclusion in the Clippers’ D&O policy. Notably, the court found a violation of the TCPA inherently amounts to an invasion of privacy.
Shortly after the LA Clippers decision, the LA Lakers brought a very similar coverage suit against Federal Insurance, and a different Central District Judge reached the same conclusion. L.A. Lakers, Inc. v. Fed. Ins. Co., No. CV 14-7743 DMG (SHx), 2015 U.S. Dist. LEXIS 62159, at *1 (C.D. Cal. Apr. 17, 2015). Judge Dolly M. Gee rejected the Lakers’ argument that the plaintiff’s claim did not involve a claim of invasion of privacy. The court considered the legislative history of the TCPA which states “[t]he purposes of the bill are to protect the privacy interests of residential telephone subscribers . . .” Judge Gee also cited to the US Supreme Court’s decision in Mims v. Arrow Fin. Servs., LLC, ___U.S.___ , ___, 132 S. Ct. 740, 744 (2012) which held “[t]he Act bans certain practices invasive of privacy.” Id.
The Lakers have filed an appeal of Judge Gee’s ruling. If the Ninth Circuit reverses the district court, the chances for coverage under D&O policies will be enhanced. Obviously, however, an affirmance of the district court ruling will make it that much more difficult for TCPA defendants to find coverage under the D&O insurance policies for the claims.
Coverage for TCPA Claims CGL Policies
Most CGL policyholders have argued that TCPA claims typically involve either “advertising injury” or “property damage” such that the alleged injuries should fall within the scope of CGL policies. On the other hand, insurers have contended that TCPA claims are not covered because TCPA damages are “penalties”, which usually are not the subject of CGL coverage. At least one circuit has addressed this issue and determined that TCPA statutory damages are in fact damages and not a penalty. See Columbia Cas. Co. v. Hiar Holding, L.L.C., 411 S.W.3d 258, 268 (Mo. 2013). However, as this area of law is still developing, insurers will likely continue to make this argument, underscoring the importance carefully reviewing policies in order to assess coverage for TCPA violations.
When professional service entities are the subject of an alleged TCPA violation, policyholders should to look to their E&O policy, however courts have been inconsistent in their E&O coverage determinations. In Landmark American Insurance Company. v. NIP Group, Inc, an insurance company successfully obtained coverage under its professional liability policy for a claim involving unsolicited fax advertisements. 962 N.E.2d 562, 567 (Ill. App. Ct. 2011). The court noted that in Illinois, E&O policies “generally provide coverage only for those risks ‘inherent’ in the insured’s professional services.” It held the policy potentially covered the TCPA claims because it listed several specific types of advertising as excluded from coverage but did not explicitly exclude unsolicited faxes. But see BCS Ins. Co. v. Big Thyme Enterprises, Inc., No. 3:12-CV-933-JFA, 2013 WL 594858 (D.S.C. Feb. 14, 2013)( sending fax advertisements did not qualify as professional services under the terms of the policy).
The TCPA has spawned a multitude of class action lawsuits and the attendant coverage cases have been fascinating. Courts have often found insurance coverage, but almost as many decisions have been against the policyholder insurance claims. Risk managers need to carefully evaluate their companies’ business plans to ensure compliance with the TCPA, educate their employees about the TCPA, and review their insurance policies to make sure the companies’ policies will provide adequate coverage if a TCPA class action is filed.